Back in the early 70's, police departments were a major source of class 3 weapons that are in the NFA registry today. For a while a PD could register a class 3 weapon with the ATF and then later sell or trade it to a class 3 dealer. You would be amazed at the weapons that PDs held. Have seen cases of carbines, heavy machine guns and lots of WWII guns.
Since the PD's didn't have money for new guns, the dealer would offer to trade new guns for the old guns. Have seen a commerical Thompson traded for two NIB Colt m-16s. For a long time Colt would only sell m-16s to a dealer if he had a purchase order or letter from the Chief. Can remember when Rem. 870 with folding stock and extended mag tube was for LE only, too. If the PD did not take all the m-16s ordered, then the dealer could sell the extra ones to the private market with a transfer. Something that I loved was that when the old guns left the PD, all the ammo, parts and accessories went to the dealer. There were a lot of collector items in those shipments. Example: 45 cal shot cart. for TSG, mil. cases of match ammo and all sorts of web gear.
The m-16s were the new toy and everyone wanted to get rid of the old guns. It was when the RIT Team training started that the m-16 then the H & Ks became the guns PDs had to have.
There were many discussions concerning guns that the military used and if Miller would apply. It was thought that if you could produce a photograph of a USGI holding any type of weapon in a war zone, it was legal. Example: tunnel rat in Vietnam holding a cut down shotgun or m-1 carbine. The Seals loved to use captured AK-47s instead of the m-16.
Heard two stories about class 3 weapons in the Atlanta PD armory:
1. They had two heavy barrel M-2 .50 cal machine guns. Never saw them.
2. During the riots of the 60s, in a hurry to issue all the auto weapons they had on hand, they forgot to log the serial numbers and who the guns were given to. Supposedly, some never came back in after the riots were over.